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Finance
The word value means different things to different people and the result will not be the same , should the context change .
A valuation is not an exact science . The value is subjective term and can have a different connotation . Valuation involves use of professional judgment , knowledge of business , analysis of facts , interpretations and use of different methods and procedures , which may result into different value in each given situation . This implies that the business value must be measured and defined by a ' standard of value ' that is relevant , meaningful and reliable . Before applying any of the accepted methods in the course of valuation of any business on going concern basis one need to look at and consider many factors which are subjective and not objective as in the case of quantitative models . We list below some of them : -
1 . Purpose of the transaction 2 . Type of transaction 3 . Historical perspectives 4 . Quality of management 5 . Synergy between business of target and acquirer 6 . Comparative company analysis 7 . Baggage attached to Target not required by Acquirer 8 . Quality and type f target business 9 . Cost of restructuring the business 10 . Mode and terms of consideration 11 . Appropriateness of a method 12 . Various variables to be used in a particular method 13 . Transaction cost
The use of professional judgment is an essential and most important component of estimating value in all cases . Further in most cases valuer arrives at range of values and not just one value .
The very first thing which we need to consider is the purpose of the transaction for which we are doing valuation- is it a Merger , Demerger , Acquisition , Sell-off , Distress assets sell-off , etc . As valuation approach in every case will be different because every transaction is unique and require specific consideration at the time of valuation .
What is the type of the transaction- strategic or financial , 100 % buy out or partial stake , whether the present management will continue etc . should be considered . Sometimes it may be necessary that the acquirer would like the present management of the target company to continue because the existing management has strong relationship with the customers and vendors and there is probability to lose the business if management changes . The cost of retaining the present management shall also form part of the purchase price . How much to be paid for retaining is critical and actually require a lot understanding of the importance of the present management in business dynamics . The acquirer should also see that whether the past baggage of the target is required to be bought . The hidden liabilities also need to be identified . Purchase price has to be adjusted accordingly .
Mode of consideration is another aspect which also gets factored in the purchase price . Purchase price in case of modes such as hard cash , equity shares , preference shares , bonds , Royalty or conditional consideration may be different .
www . Venture-Care . com / Magazine December 2017
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